Increase in the Medicare levy
As of 1 July 2019 the Government will increase the Medicare levy by 0.5% from 2.0% to 2.5% of taxable income to ensure the National Disability Insurance Scheme (NDIS) is fully funded. Not only will the Medicare levy be subject to this increase, but other taxes linked to the top personal tax rate, such as the fringe benefits rate, will also increase.
Increase in tax revenue to fund healthcare
As a result of the increase, it is estimated there will be an $8.2 billion gain in tax revenue over the forward estimates period. However, this is the net impact across all heads of revenue, not just the Medicare levy. With the increased revenue, the Government is committed to fully funding its share of the costs of the NDIS. One-fifth of the revenue raised by the Medicare levy will be directed to the NDIS Savings Fund. The remaining revenue raised from the Medicare levy will be credited to the soon to be established Medicare Guarantee Fund.
Relief for low income earners
Despite the increase in the Medicare levy, low-income earners will continue to receive relief from the Medicare levy through the low-income thresholds for singles, families, seniors, and pensioners. The current exemptions from the Medicare levy will also remain in place.
The increase to the Medicare levy, combined with the abolition of the deficit levy from 1 July 2017, creates a set of circumstances in which those paying the top personal tax rate receive the greatest net benefit. By 2019, those earning over $180,000 will have received an effective tax cut of 1.5%, being taxed at 47.5%, compared to the current effective tax rate of 49%. As the 2% deficit levy was not applied to those outside of the top tax bracket, those earning less than $180,000 face a 0.5% increase in their rate of income tax (other than those in the low-income exemption brackets).